All Eyes on Viacom/YouTube Case After Court Rules For Veoh

A California appeals court yesterday rejected Universal Music’s claim that video-sharing service Veoh didn’t do enough to protect content owners. All eyes now turn to New York where another influential court is set to rule on the same issue — who should be responsible for copyright enforcement.

In the Veoh decision, a unanimous 9th Circuit Court of Appeals gave a ringing endorsement to the current copyright regime in which “safe harbors” protect internet companies from misdeeds by their users. Universal had argued that Veoh lost protection of its safe harbor because it didn’t do enough to stop unauthorized videos on the site.

The Veoh decision basically affirms existing law but it is significant because the lawsuit is part of a great game in which copyright owners are trying to chip away at safe harbors. The goal of the game is to use lawsuits and legislation to place more copyright enforcement duties onto sites like Veoh.

Copyright owners are unhappy with the current regime, created in 1998, which protects sites like Veoh as long as they remove copyrighted material when they receive notice about it. They complain the system has left them playing a whac-a-mole game as internet users upload more and more files. Internet companies respond that copyright owners are overstating the problem, especially as almost all of the “notice-and-takedown” work takes places through automated technology.

In the context of this debate, yesterday’s decision was a strategic setback for the content industry because the court strongly affirmed the current system:

Although Congress was aware that the services provided by companies like Veoh are capable of being misused to facilitate copyright infringement, it was loath to permit the specter of liability to chill innovation that could also serve substantial socially beneficial functions. Congress decided that “by limiting[service providers’] liability,” it would “ensure[ ] that the efficiency of the Internet will continue to improve and that the variety and quality of services on the Internet will continue to expand.”

The part of the decision that copyright lawyers will be looking at most closely involves the meaning of so-called “red flags” — situations where companies like Veoh should have known that users were violating copyright but did nothing to stop it. Universal, Viacom (NYSE: VIA) and other content owners are hoping to use the red flag rule to shred some of the safe harbor protections.

The 9th Circuit Court didn’t bite this time. Copyright aficionados can read for themselves in paragraph 14 of the decision (embedded below), but the long and the short of it is: “we hold that Veoh’s general knowledge that it hosted copyrightable material and that its services could be used for infringement is insufficient to constitute a red flag.”

The entertainment industry will be disappointed by the California court’s terse ruling but the game is not over yet. Red flags are also expected be a big part of the YouTube-Viacom decision expected any day now. In October, the 2nd Circuit Court of Appeals in New York took the unusual step of asking YouTube (NSDQ: GOOG) and Viacom to submit an additional filing after a hearing to explain red flags in more detail.

The Viacom-YouTube case is being watched closely in the mainstream press because it sheds light on the early days of the popular video service that Google bought in 2006. The case has also garnered headlines because of the sensationalist $1 billion figure that Viacom is claiming and because it involves other high-wattage players like the English Premier League.

The New York court is taking an unusually long time to issue its ruling, possibly because it’s been waiting to see what its sister court in California had to say.

If the 2nd Circuit decides to break from the 9th Circuit in its YouTube ruling, the stage could be set for Supreme Court review. The New York court is considered one of the intellectual giants among the country’s federal appeals courts while the California court is well-respected for its sophisticated rulings on technology issues.

As for Veoh, the video-sharing service declared bankruptcy in 2010, citing the exorbitant costs of defending itself in the Universal lawsuit which it has won at each stage. But the website is still operating after being obtained by a company backed by Jerusalem Venture Partners.